Regulators should explore alternatives to conveyancers holding client money in a bid to tackle the risks of fraud, the Legal Services Board (LSB) has recommended.
However, the LSB concluded that the combination of insurance and compensation arrangements and actions being taken to address the risks by the regulators and other stakeholders in the market mean that “there is no justification” for the board itself to take further action.
In a thematic review of conveyancing published last week, the LSB made seven recommendations to help the regulators – the Solicitors Regulation Authority and Council for Licensed Conveyancers – and any future regulators shape their approach.
Client money was at the heart of them. “The costs and benefits of holding client money need to be carefully assessed,” it said. “The costs should include the costs of compensation arrangements (including contributions to a fund, the cost of maintaining and administering a fund and the opportunity cost of having a fund) and compliance with regulatory arrangements.”
Secondly, the LSB said “alternatives to legal services providers holding client money should be explored”, while regulators should also consider whether their client money rules are proportionate.
Last month Law Society chief executive Des Hudson announced an investigation into whether solicitors could be given the option of not having a client account, although he said “at the moment there do not appear to be any practical alternatives to it in residential conveyancing”.
The LSB also urged the regulators to look at their training requirements, particularly ongoing professional development. “[They] should consider whether each provider has an appropriately trained and skilled workforce rather than if particular individuals have done a certain number of hours of training a year.”
While saying the scale of mortgage fraud involving lawyers is difficult to quantify, the LSB acknowledged that “regulators and the market in general have taken this issue very seriously and have already made significant investment in taking action against fraud, thereby improving confidence in the conveyancing process”.
It noted the Law Society’s introduction of the Conveyancing Quality Scheme, and said the response of some lenders to only want firms on their panel that are members of CQS, “can be seen as the market reacting to innovation”. However, it continued: “For the scheme to have real value, it should be measured by the reassurance that it gives to consumers.”
The LSB also looked at whether conveyancing consumers are at risk of not being able to compare or understand the cost of the transaction they are entering into. It found: “In fact, the evidence suggests that conveyancing consumers are more likely to score positively [in] understanding prices and being able to make comparison.”